Comcast profit triples, spending raises concerns
NEW YORK (Reuters) - Comcast Corp. said on Thursday its quarterly profit tripled, but higher-than-expected spending plans for 2007 dragged down shares of the largest U.S. cable company and its rivals.
Comcast forecast revenue growth of at least 11 percent in 2007, which was in line with market expectations, but its estimate of $5.7 billion in capital expenditure was above the average analyst forecast of $4.8 billion, according to Reuters Estimates.
The company said most of the spending will be to accelerate the introduction of new products like high-definition video, and to boost its relatively new business of selling services to small and medium companies.
With the increased spending, Comcast forecast free cash flow to be flat in 2007, compared with a 30 percent rise in 2006.
"The issue weighing on investors is the impact of capex on free cash flow," said Thomas Eagan, an analyst at Oppenheimer. "To us, the pullback on Comcast stock today is a little short-sighted, but I think Comcast are being conservative."
Comcast shares fell $1.43, or 3.2 percent, to $42.92. Time Warner Inc., which owns the No. 2 U.S. cable operator, fell 1.1 percent, Cablevision Systems Corp. fell 3.3 percent and Charter Communications Inc. fell 3.1 percent.
"All cable valuations hinge on Comcast," said Craig Moffett, an analyst at Sanford Bernstein. "A reduction in Comcast's enterprise value means a very large reduction in the equity value of the more heavily leveraged players," he said.
Comcast's stock has risen about 70 percent since the start of 2006, spurred by cable's successful marketing of so-called "triple play" video, high-speed Internet and phone services.
Analysts say further share price gains will be limited this year as competition from telecoms providers such as AT&T Inc. and Verizon Communications Inc. steps up.
But Chief Executive Brian Roberts said Comcast had an opportunity to grow faster in 2007, supported by investment.
"If that drives some additional capital spending I think that's a great opportunity that we should embrace," he told Reuters. "I think that in the fullness of time people will see that this is going to power our business for years to come."
CABLE GROWTH
Comcast reported its strongest growth in basic video subscribers in 10 years during the fourth quarter, adding 110,000 new customers.
That beat the 54,000 additions forecast by Moffett, who said the growth showed that triple play is pulling Comcast and other cable companies ahead of satellite TV rivals.
DirecTV Group Inc. shares fell 1.2 percent and EchoStar Communications Corp. fell 1.5 percent.
Comcast Chief Financial Officer John Alchin told an analyst call that the company expects to add even more basic video subscribers in 2007 than the 80,000 it added in 2006.
Comcast expects cable revenue growth of at least 12 percent in 2007, and said it will add at least 6.5 million new revenue generating units (RGUs), which is the number of individual products it sells to subscribers.
The company said fourth-quarter net profit rose sharply to $390 million, or 18 cents per share, from $133 million, or 6 cents per share, a year earlier.
Revenue rose 30 percent to $7.03 billion, close to the average $7.05 billion analyst forecast from Reuters Estimates.
In the fourth quarter, Comcast said it signed up 613,000 digital video subscribers and added a net 508,000 digital phone customers, and 488,000 high speed Internet subscribers.
The additions beat Moffett's forecasts in all categories except for phone. He had forecast digital video additions of 465,000, digital phone additions of 546,000, and high-speed Internet additions of 462,000.
Comcast also said it approved a three-for-two stock split in the form of a 50 percent stock dividend payable on February 21.
